Coles and Bunnings growth for Wesfarmers in third quarter

Coles and Bunnings have contributed to profit increase for WesfarmersWesfarmers has reported sales growth in the Coles supermarkets business and in hardware store business Bunnings in the third quarter of the 2014 financial year.

Coles supermarkets food and liquor sales saw 3.9 per cent growth in the third quarter, while Bunnings saw sales growth of 12.9 per cent. Wesfarmers said the Group’s retail sales performance during the third quarter generally reflected a similar mix of trading results to that recorded during the first half, especially when considering the impacts of an earlier Easter in financial year 2013.

“Highlights for the period included the performances of Bunnings and Officeworks which recorded particularly strong sales growth and the solid result delivered by Coles,” said Richard Goyder Wesfarmers Managing Director.

Mr Goyder said Coles “continued to offer customers better value through ongoing investment in lower prices, while making good progress in supplier partnering which contributed to further improvements in fresh produce participation”.

Wesfarmers said the Bunnings business achieved positive outcomes across all its strategic initiatives, with “very good” growth recorded in all major trading regions and key product categories.

Coles

Food and Liquor

Headline food and liquor sales for the third quarter were $6.7 billion, up 3.9 per cent on the previous corresponding period. Food and liquor sales were up 4.7 per cent to $21.7 billion for the financial year to date.

Comparable food and liquor store sales increased 3.5 per cent in the third quarter after adjusting for the inclusion of New Year’s Eve in the previous corresponding period and the earlier timing of Easter in the 2013 financial year. Excluding liquor, comparable food store sales increased 3.9 per cent for the quarter on the same basis. Without the adjustments, comparable food and liquor store sales and comparable food store sales for the quarter increased 3 per cent and 3.5 per cent respectively.

Coles Managing Director, Ian McLeod, said the comparable sales growth was pleasing, particularly given the restrictions on fuel discounts from 1 January 2014 and against the strong comparative sales achieved in the same period last year.

“This represents a continuation of Coles’ strong performance following five years of positive comparable sales growth,” Mr McLeod said. “Record supermarket sales per square metre, over 20 million customer transactions a week and continued growth in underlying volumes and basket size were all achieved in the quarter,” he said.

Overall food and liquor price deflation eased to 0.8 per cent in the third quarter, which Wesfarmers said was a result of a modest level of fresh produce inflation which partially offset continued investment in lower prices as Coles extended its lower prices campaign, introducing over 50 new products to the “Down Down” campaign, with savings of up to 34 per cent recorded relative to original prices offered. Price deflation of 1.5 per cent was recorded for the financial year to date.

Wesfarmers said the Coles business continued to demonstrated its support for local food producers by replacing all Smart Buy frozen vegetables across Australia with 100 per cent Australian-grown vegetables, which it said benefitted more than 240 growers in Tasmania and New South Wales.

Coles opened two larger supermarkets and closed four smaller supermarkets during the quarter, taking the total number of supermarkets to 760. Coles has committed to opening a further 70 new stores over the next three years. Coles also progressed its store renewal program during the quarter, completing a further 11 refurbishments with 52 per cent of the store network now in the renewal format.

During the quarter, Coles also delivered more targeted and personalised offers in its Liquor business and continued to reshape the store network, opening five new liquor stores and closing nine stores.
Convenience

Total Coles Express sales, including fuel, for the third quarter were $1.9 billion, up 2.4 per cent on the previous corresponding period. Total sales for the financial year to date increased 4.7 per cent to $6.2 billion.

Headline fuel volumes declined 6.5 per cent during the quarter and 2.4 per cent for the year to date. Comparable fuel volumes decreased 6.8 per cent in the third quarter as a result of higher fuel prices and reduced fuel discounts following the December 2013 undertaking on fuel discounts which took effect in January 2014. Comparable fuel volumes decreased 2.6 per cent in the year to date.

Convenience store sales, excluding fuel sales, increased 9.1 per cent for the quarter and 5 per cent in the year to date. Comparable store sales increased 8 per cent in the third quarter and 4.9 per cent in the year to date.

Mr McLeod said the improved convenience store performance reflected a positive customer response to improved value and ranges in grocery, the revitalised “Food to Go” offers and the effect of tobacco excise increases.

Coles Express opened two new sites during the third quarter, bringing the total store network to 639 sites.

Home improvement and office supplies

Home Improvement

Total sales for the quarter of $2.1 billion were 12.3 per cent above the previous corresponding period. Total store sales for the quarter grew 12.2 per cent, while store-on-store growth was 9.1 per cent.

For the financial year to date total sales increased 11 per cent to $6.5 billion. Total store sales grew 11.1 per cent in the year to date, while store-on-store growth was 7.8 per cent.

Sales growth was reported in both consumer and commercial areas across every trading region. Wesfarmers said all merchandising categories performed well, in both existing and new stores.

“We are pleased with the outcomes being achieved across all our strategic initiatives, with positive trends in our service metrics as well as favourable customer responses to increased value and range innovation,” said John Gillam, Home Improvement and Office Supplies Managing Director. “The ongoing expansion of our presence in the commercial area was also a highlight,” he said.

During the quarter four warehouse stores were opened. A further 16 sites were under construction at the end of March.

Office Supplies

Wesfarmers reported that total sales for the quarter of $445 million were 6.7 per cent above the previous corresponding period. Wesfarmers said strong sales growth was achieved across both stores and online, consistent with Officeworks’ “every channel” strategy. Adjusting for the effect of the earlier timing of Easter in the 2013 financial year, sales growth for the quarter was 5.2 per cent.

Wesfarmers said the highlight of the quarter was the strong result achieved during the critical back-to-school trading period as a result of well executed operational and merchandising plans.

For the 2014 financial year to date, total sales increased 5.3 per cent to $1.2 billion.

“The business is driving its “every channel” strategy very well, providing customers with a compelling offer, both in-store and online. Officeworks also continues to expand its presence in the business-to-business market,” Mr Gillam said.

Target

Wesfarmers reported that total sales of $674 million for the quarter were 3.6 per cent below the previous corresponding period, with comparable store sales decreasing 5.9 per cent. Adjusting for the effect of the earlier Easter timing in the previous corresponding period, comparable store sales decreased 4.7 per cent during the quarter.

For the 2014 financial year to date, Wesfarmers reported that total sales decreased 4.8 per cent to $2.7 billion, while comparable store sales decreased by 5.2 per cent.

Target Managing Director Stuart Machin said the sales performance during the quarter reflects the transformation underway within the business.

“During the quarter we continued to lower our prices and reduce our reliance on over-ordering and over-promoting, consistent with our ‘first price, right price’ strategy,” Mr Machin said. “Sales were, however, affected during the quarter as we rebuild trust with our customers who have come to expect high levels of discounting from Target,” he said.

“After a disappointing sales performance in January and February, particularly in our hard goods departments, trading in March was more encouraging with lower prices offset by transaction growth,” Mr Machin said. “Stronger sales were achieved in departments where better fashion, style, quality and lower everyday prices have been introduced,” he said.

“There remains significant opportunity to improve our sourcing, although a continued focus on inventory has resulted in an improved seasonal mix,” Mr Machin said.

During the quarter Target closed one store. One new store and two replacement stores are expected to be opened in the fourth quarter.

Kmart

Total sales of $845 million for the quarter for Kmart were 0.4 per cent above the previous corresponding period, with comparable store sales increasing 0.7 per cent. Adjusting for the effect of the earlier Easter timing in the previous corresponding period, comparable store sales increased 1.9 per cent during the quarter. Wesfarmers said the quarter represented the seventeenth consecutive quarter of growth in transactions and units sold.

For the 2014 financial year to date total sales increased 0.2 per cent to $3.2 billion with comparable store sales declining 0.6 per cent. Adjusting for the effect of the Toy Sale, which saw the removal of Christmas lay by, year to date comparable sales increased 0.3 per cent.

Kmart Managing Director Guy Russo said sales performance for the quarter was pleasing, with growth driven by seasonal apparel and core ranges within home categories. Growth was, however, affected during the quarter by the misalignment of Easter timing and the continued decline in entertainment categories such as DVDs and video games.

During the quarter, Kmart temporarily closed one store, Mount Gravatt in Queensland, which is due to reopen in a new location in late August 2014. Two new stores are expected to open in the fourth quarter.